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MUMBAI, October 19: The concept of venture business is yet to take strong roots in India. Public sector's linkage with the government rende...

Written by N K NAIR

October 20, 1997 12:00 AM IST

3 min read

MUMBAI, October 19: The concept of venture business is yet to take strong roots in India. Public sector8217;s linkage with the government renders it risk averse and thus antagonistic to venture business. Similarly, because of restricted competition and risk free returns implicit in the reserved list of industries, there was no incentive for small sale units to resort to venture business until now.

Worldwide, venture business are the main sources of technological and economic dynamism in competitive environments. Even in developed market economies, large enterprises are risk averse; only the more dynamic small entrepreneurs innovated on products, processes and markets because of their flexibility and agility. Venture businesses constantly adopt new strategies, create new business ideas, develop new markets and also meet customer requirements. New product development, shorter delivery times and strategic alliances among small enterprises were largely responsible for the Japanese economic miracle of sixties and seventies. Similarly, small entrepreneurs in Italy are known for their creativity, far from playing copycat.

India8217;s prominent export sectors like cotton textiles, garments, gems amp; jewellery, leather, machine tools etc. are vulnerable to being out-marched by our competitors, especially from east and South Asia. Venture business is the vehicle through which economies achieve and sustain competitive edge in the world market. Worldwide experience reveals many hurdles on the path of successful venture businesses. Firstly, many such ventures found it hard to market their products because customers, invariably, are in a not-me first8217; syndrome; especially if the ventures are of scientists and engineers with little marketing experience. Such entrepreneurs need to develop strategic partnerships with experienced businesses. In many cases, venture enterprises have lost the marketing initiative to other firms and were forced to act as if they wee the latter8217;s sub-contractors. Secondly, cost of production of venture businesses tend to be higher due to very high R amp; D investments leading to longer waiting period for profits to materialise.

Capital scarcity conditions in developing economies do not favour such a situation. Thirdly, wherever the patent regime is weak, as has been the case in India, there is the risk of new products or processes being pirated by unscrupulous imitators with capability to respond faster to market demand. Fourthly, venture businesses involve high risk investments, with no guarantee on returns. The success ratio is less than 30 percent evening advanced countries. This renders financial participation in venture business from security minded banks rather difficult.

It is therefore necessary to promote venture business through various fiscal and institutional mechanisms like loans, subsidies, tax breaks, credit guarantees and equity capital. The new venture Support Law 1995 of Japan, for instance, confers on venture business, among other fiscal benefits, loans up to US 200,000 without any collateral or guarantees. There is also an investment partnership fund of 17 billion yen to finance venture businesses in Japan. There is no such law in India. The institutional support mechanism aimed at promoting venture business in the country has been confined to about 13 Venture Capital Funds operated by the commercial and development banks with extremely inadequate capital base and complex procedures.

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